After weeks of delays and intense negotiations, the European Council has finally given the green light to the Corporate Sustainability Due Diligence Directive (CSDDD), albeit in a significantly diluted form from its original proposal. This directive, aimed at holding companies accountable for environmental and human rights violations within their supply chains, has faced criticism from sustainability advocates for its weakened provisions.
The CSDDD, also known as the CS3D, sets a standard for corporate due diligence on sustainability issues, primarily focusing on environmental concerns, climate change, and human rights. Notably, it extends its requirements not just to the actions of the companies themselves but also to their subsidiaries and supply chains.
Initially slated for an easy approval, the final draft of the CSDDD encountered obstacles when Germany announced its intention to abstain from the vote, followed by similar stances from France, Italy, and other member states. This dissent made it evident that the European Council lacked the necessary majority support.
The subsequent 45 days saw closed-door negotiations, multiple false starts, and intense political pressure, frustrating sustainability advocates. Despite several leaked deals, the final agreement approved on March 15th substantially scaled back the scope of the directive. Originally applicable to companies with 500 employees and a turnover of €150 million, the threshold has been raised to 1,000 employees and €450 million turnover.
Furthermore, the directive no longer adopts the high-risk sector approach, which would have encompassed companies operating in industries prone to human rights or environmental conflicts. With these changes, the directive's impact is estimated to affect only 30% of its original scope, representing a mere 0.05% of businesses operating in the EU.
Additionally, a phased implementation plan has been introduced, with larger companies facing compliance obligations sooner than smaller ones. Companies with 5,000 employees and €1,500 million turnover will be affected in three years, followed by those with 3,000 employees and €900 million turnover in four years, and finally, companies with 1,000 employees and €450 million turnover in five years.
The CSDDD will now proceed to the European Parliament, where it is anticipated to undergo scrutiny by the legal affairs committee (JURI) before a final vote. Despite expectations of approval, the volatile political landscape underscores the uncertainty until the parliamentary vote is concluded.
